You estimate that a passive portfolio, that is, one invested in a risky portfolio that mimics the S&P 500 stock index, yields an expected rate of return of 14% with a standard deviation of 28%. You manage an active portfolio with expected return  17% and standard deviation 25%. The risk-free rate is 5%. Your client's degree of risk aversion is A = 2.2.

a. If he chose to invest in the passive portfolio, what proportion, y, would he select? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What is the fee (percentage of the investment in your fund, deducted at the end of the year) that you can charge to make the client indifferent between your fund and the passive strategy affected by his capital allocation decision (i.e., his choice of y)? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Given the following information for ONAIR Co., find the WACC. Assume the company’s tax rate is 35 percent. Debt 10,000, 5% semi-annual payment coupon bonds outstanding. $1,000 par value, 30 years to maturity. Selling for 98% of par value. Common Stock 500,000 shares outstanding, selling for $70 per share, the beta is 1.2 Market 8% market risk premium and 4% risk-free rate

Divided Furniture Inc. has 11,000 bonds outstanding with a market price of $104 per bond. The firm also has 35,000 preferred shares outstanding and 45,000 common shares outstanding. Preferred stock and common stock are both expected to pay a year-end dividend of $2.20 per share. The current price per share of common stock is $36 per share. Preferred stock is priced at $52 per share. Preferred dividends do not grow and common stock dividends are expected to grow at a rate of 4 percent. The firm's tax rate is 40 percent. If the yield on the firm's bonds is 8%, what is the firm's weighted average cost of capital?

In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the firm's additional funds needed (AFN) for next year. The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year?

Select the correct answer.

QUESTION 59

1. Peter has a fixed income portfolio that consists of Bond A, Bond B, and Bond C. The bonds have durations of 4, 6 and 10, respectively. If Peter has 50% invested in Bond A and 25% invested in each of the other two bonds, what is the duration for the portfolio? Assume that the correlation between the bonds is 0.5.

   		a. 5.5.
   		b. 6.0.
   		c. 6.7.
   		d. 7.2.

QUESTION 60

1. Gordon bought a 10-year bond, with a 6% coupon paid semi-annually. He paid $1,078 for the bond. What is the effective duration assuming a 50-basis point change in interest rates?

   		a. 7.3427.
   		b. 7.5755.
   		c. 8.1669.
   		d. 8.2154.

You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the assets are 11 percent and 16 percent, respectively. The standard deviations of the assets are 28 percent and 36 percent, respectively. The correlation between the two assets is 0.39 and the risk-free rate is 4.4 percent. What is the optimal Sharpe ratio in a portfolio of the two assets? What is the smallest expected loss for this portfolio over the coming year with a probability of 16 percent? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your Sharpe ratio answer to 4 decimal places and the z-score value to 3 decimal places when calculating your answer. Enter your smallest expected loss as a percent rounded to 2 decimal places.)

The YayForSemesterBreak Company wants to calculate the NPV and IRR on the following project: Cost is $17,800 today, with end-of-year cash flows of $8,000, $8,000, and $7,000, Years 1 through 3 respectively for three years. Assume the cost of capital is 8%. SHOW ALL WORK on the TI BAII Plus Calculator FOR FULL CREDIT. a) NPV? b) IRR? c) Do you accept or reject the project, and why?

Titan Mining Corporation has 7.9 million shares of common stock outstanding, 295,000 shares of 4.2 percent preferred stock outstanding, and 180,000 bonds with a semiannual coupon rate of 5.7 percent outstanding, par value $2,000 each. The common stock currently sells for $58 per share and has a beta of 1.10, the preferred stock has a par value of $100 and currently sells for $98 per share, and the bonds have 17 years to maturity and sell for 106 percent of par. The market risk premium is 6.7 percent, T-bills are yielding 3.4 percent, and the company’s tax rate is 23 percent.

a. What is the firm’s market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.)

b. If the company is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows? (Do not round intermediate calculations enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

18) You are considering investing in a project that increases annual costs $25,000 by per year over the project's 5 year life . The project has an initial cost of $ 500,000 and will be depreciated straight - line over 5 years Assume a 32 % tax bracket and a discount rate of 11 % . Suppose the equipment is sold at the end of year 5 for $ 300,000 , pretax . What is the NPV ?

a)-$317,,818.44

b)-$455,887.34

c)-$243,667.99

d)-$323,497.47

e)-$356,428.12

Final earnings estimates for the Smithfield Meat Packing Company have been prepared for the CFO of the company and are shown in the following​ table:

YEAR PROFITS AFTER TAXES 1 12,000,000 2 15,000,000 3 19,000,000 4 23,000,000 5 25,000,000

The firm has 4,000,000 shares of common stock outstanding. As assistant to the​ CFO, you are asked to determine the yearly dividend per share to be paid depending on the following possible​ policies:

a. A stable dollar dividend targeted at 30 percent of earnings over a​ 5-year period.

b. A​ small, regular dividend of $0.60 per share plus a​ year-end extra when the profits in any year exceed ​$18,000,000 The​ year-end extra dividend will equal 50 percent of profits exceeding ​$18,000,000

c. A constant dividend payout ratio of 40 percent.

a. What is the yearly dividend per share to be paid depending on a stable dollar dividend targeted at 30 percent of earnings for years 1 through​ 5?

​$nothing per share  ​(Round to the nearest​ cent.)

b. Determine the yearly dividend per share to be paid depending on a​ small, regular dividend of ​$0.60 per share plus a​ year-end extra when the profits in any year exceed ​$18,000,000.

The​ year-end extra dividend will equal 50 percent of profits exceeding $18,000,000.

c. Determine the yearly dividend per share that will be paid assuming a constant dividend payout ratio of

40 percent.

Assume that the USD/JPY exchange rate is 108.58. Which one of the following concepts supports the idea that an item that sells for 500 U.S. dollars in the U.S. is currently selling in Japan for 54,290 Japanese yen?

Group of answer choices

Interest rate parity

Absolute purchasing power parity

International fisher effect

Uncovered interest rate parity

Unbiased forward rates condition

Parramore Corp has $10 million of sales, $3 million of inventories, $4 million of receivables, and $3 million of payables. Its cost of goods sold is 85% of sales, and it finances working capital with bank loans at an 6% rate. Assume 365 days in year for your calculations. Do not round intermediate steps.

1. What is Parramore's cash conversion cycle (CCC)? Do not round intermediate calculations. Round your answer to two decimal places.
     days
2. If Parramore could lower its inventories and receivables by 12% each and increase its payables by 12%, all without affecting sales or cost of goods sold, what would be the new CCC? Do not round intermediate calculations. Round your answer to two decimal places.
     days
3. How much cash would be freed up, if Parramore could lower its inventories and receivables by 12% each and increase its payables by 12%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
4. By how much would pretax profits change, if Parramore could lower its inventories and receivables by 12% each and increase its payables by 12%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   $

Assume that international capital markets are competitive and that global real interest rates are the same. The one-year interest rate is 9 percent in the United States and 5 percent in Switzerland. If the expected inflation rate is 6 percent in the United States, what is the expected inflation rate in Switzerland?